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2008
THE PARLIAMENT OF THE COMMONWEALTH OF AUSTRALIA
HOUSE OF REPRESENTATIVES
FINANCIAL FRAMEWORK
LEGISLATION AMENDMENT BILL 2008
EXPLANATORY MEMORANDUM
(Circulated by the authority of the
Minister for Finance and Deregulation,
the Hon Lindsay Tanner MP)
TABLE OF CONTENTS
Outline ...................................................................................................................................1
Financial Impact ...................................................................................................................1
Notes on clauses ....................................................................................................................1
Part 1--Preliminary ............................................................................................................1
Clause 1--Short title .....................................................................................................1
Clause 2--Commencement ...........................................................................................1
Clause 3--Schedules .....................................................................................................1
Notes on Schedule 1 - Main amendments ..........................................................................2
Part 1 - Amendments ...........................................................................................................2
Amendments to the Albury-Wodonga Development Act 1973 ......................................2
Amendments to Financial Management and Accountability Act 1997.........................3
Notional payments and receipts by Agencies: section 6 .....................................................3
Offences: section 7 ..............................................................................................................3
Interaction between Finance Minister's Orders and the FMA Regulations ........................3
Penalties generally ...............................................................................................................4
Outsiders making payments: section 12 ..............................................................................4
Special Instructions are a legislative instrument: section 16 ...............................................4
Appropriations and drawing rights: section 27....................................................................4
Advisory Committees and FMA Regulations: sections 33, 34 & 59 ..................................5
Note regarding appropriations supporting act of grace payments: section 33 ....................5
Payments pending probate: section 35 ................................................................................5
Investment of public money: section 39..............................................................................5
Chief Executives' powers to enter contracts etc: subsection 44(1) .....................................6
Compliance with other legislative requirements: subsection 44(2).....................................7
Relevance of Commonwealth policies: subsection 44(3)....................................................7
Keeping responsible Minister and Finance Minister informed: proposed section 44A ......9
Audit committee requirements: section 46..........................................................................9
Additional Financial Statements: section 50 .......................................................................9
Reporting requirements and change of Agency: section 51 ..............................................10
Advisory Committees: section 59......................................................................................10
Status of FMOs as a "legislative instrument": section 63 .................................................10
Guidelines by Ministers: section 64 ..................................................................................10
Amendment to the Public Service Act 1999................................................................10
Amendments to the Reserve Bank Act 1959................................................................11
Part 2 - other provisions ...................................................................................................11
Saving provision relating to the Albury-Wodonga Development Corporation...........11
Application, saving and transitional provisions relating to the FMA Act...................11
Regulations relating to transitional issues ...................................................................11
Provisions relating to the National Water Commission Act 2004 ...............................12
Notes on Schedule 2 - Consequential amendments to Defence legislation....................12
Explanatory Memorandum - Financial Framework Legislation Amendment Bill 2008 page ii
Table of Acronyms and Defined Terms
AWD Act Albury-Wodonga Development Act 1973
AWDC Albury-Wodonga Development Corporation
CAC Act Commonwealth Authorities and Companies Act 1997
FFLA Bill Financial Framework Legislation Amendment Bill 2008
FMA Act Financial Management and Accountability Act 1997
FMA Regulations Financial Management and Accountability Regulations 1997
FMOs Finance Minister's Orders
Item An item of a Schedule to the FFLA Bill
LI Act Legislative Instruments Act 2003
NWC Act National Water Commission Act 2004
Explanatory Memorandum - Financial Framework Legislation Amendment Bill 2008 page iii
1
Financial Framework
Legislation Amendment Bill 2008
Outline
1. The Financial Framework Legislation Amendment Bill 2008 (FFLA Bill) proposes
amendments to the Financial Management and Accountability Act 1997 (FMA Act) as
well as to four other Acts: the Albury-Wodonga Development Act 1973, the Public Service
Act 1999, the Reserve Bank Act 1959, and the Defence Home Ownership Assistance
Scheme Act 2008. The FFLA Bill also contains a provision that affects, but does not
directly amend, the National Water Commission Act 2004 (NWC Act).
2. The purpose of the proposed amendments to the FMA Act is to further simplify
and clarify the financial management framework, thus reducing red tape in internal
Australian Government administration. The amendments to the other Acts above are
either consequential to the FMA Act amendments or otherwise related to the financial
framework.
3. This is the fifth FFLA Bill since 2004, as part of an ongoing approach to
maintaining the Australian Government's financial framework. Four of those Bills
became law, with the first FFLA Bill lapsing upon the prorogation of the Australian
Parliament for the 2004 federal election.
Financial Impact
4. The FFLA Bill would have no financial impact. The proposed provision relating
to the NWC Act, and the Water Smart Australia Special Account, is budget-neutral.
Notes on clauses
Part 1--Preliminary
Clause 1--Short title
5. This clause specifies that when the FFLA Bill is passed it may be cited as the
Financial Framework Legislation Amendment Act 2008.
Clause 2--Commencement
6. This clause provides for the amendments relating to the Albury-Wodonga
Development Corporation to commence on 1 July 2009, with all other substantive
amendments to commence on Proclamation.
Clause 3--Schedules
7. This clause provides that each Act specified in a Schedule to the FFLA Bill would
be amended as set out in the applicable items in the relevant Schedule. There are two
schedules to the Bill:
· Schedule 1 contains amendments to the FMA Act, the Albury-Wodonga
Development Act 1973, the Public Service Act 1999, and the Reserve Bank Act 1959.
It also contains a provision relating to the NWC Act.
· Schedule 2 contains amendments to the Defence Home Ownership Assistance
Scheme Act 2008.
Explanatory Memorandum - Financial Framework Legislation Amendment Bill 2008 page 1
2
Notes on Schedule 1 - Main amendments
Part 1 - Amendments
Amendments to the Albury-Wodonga Development Act 1973
8. Items 1 to 14 amend sections of the Albury-Wodonga Development Act 1973
(AWD Act), primarily to apply the Commonwealth Authorities and Companies Act 1997
(CAC Act) to the Albury-Wodonga Development Corporation (AWDC).
9. Item 1 amends the definition of `chief executive officer' in subsection 3(1) to
identify the chief executive officer by reference to the person appointed under section
10A. This amendment ensures consistency between the definition and the current
provision relating to the appointment of the chief executive officer.
10. Item 2 corrects a typographical error in a reference to the Legislative Instruments
Act 2003, where section 5A of the AWD Act incorrectly refers to the Legislative
Instruments Act 2000.
11. Item 3 inserts a note at the end of subsection 9(1) of the AWD Act to state that the
CAC Act applies to the AWDC.
12. Item 4 repeals section 9A of the AWD Act which specifically provides that the
AWDC is not a Commonwealth authority for the purposes of the CAC Act.
13. Item 5 repeals the existing paragraph 15(2)(g) and substitutes a new paragraph,
which is a consequential amendment required due to the repeal of section 16 of the AWD
Act at item 6. The new paragraph instead refers to sections 27F and 27J of the CAC Act.
14. Item 6 repeals section 16 of the AWD Act, which is inconsistent with sections 27F
and 27J of the CAC Act.
15. Item 7 adds a missing parenthesis after the reference to the Public Service
Act 1999.
16. Item 8 repeals section 27 which provides for moneys of the AWDC to be paid into
an account of an approved bank. Since Division 3 of the CAC Act deals with banking
arrangements, section 27 of the AWD Act can be repealed to avoid inconsistency.
17. Item 9 omits the characters "(1)" from section 28 of the AWD Act. This is
required as a result of the repeal of subsection 28(2), at item 10.
18. Item 10 repeals subsection 28(2), which relates to the investment of moneys.
Since subsection 18(3) of the CAC Act deals with investments, subsection 28(2) can be
repealed to avoid inconsistency.
19. Item 11 repeals section 30 which outlines the auditing requirements for the
AWDC. Since section 8 of the CAC Act provides for the Auditor-General to audit a
Commonwealth authority, and section 20 of the CAC Act outlines the requirements for
accounting records, section 30 of the AWD Act can be repealed to avoid inconsistency.
20. Item 12 repeals paragraph 31A(1)(b), because paragraph 31A(1)(c) sufficiently
covers the ability of the Minister responsible for the AWDC to issue delegations to
SES employees.
21. Item 13 amends subsection 31B(1) by omitting the reference to section 28 of the
AWD Act. Section 31B relates to the ability of the Finance Minister to make delegations,
however, the repeal of subsection 28(2) renders this reference redundant.
Explanatory Memorandum - Financial Framework Legislation Amendment Bill 2008 page 2
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22. Item 14 repeals sections 32 and 33, which relate to the preparation of an annual
report and an annual financial statement. The CAC Act provides for the preparation of an
annual report by a Commonwealth authority (see section 9 and Schedule 1). Therefore
sections 32 and 33 of the AWD Act can be repealed.
Amendments to Financial Management and Accountability Act 1997
Notional payments and receipts by Agencies: section 6
23. Item 15 substitutes a new section 6 of the FMA Act. The purpose of section 6 is to
ensure that payments made within the Commonwealth, by FMA Act agencies, which are
analogous to actual payments, are treated as if they were actual payments and therefore
require, for example, the use of a drawing right and the debiting of an appropriation.
24. The proposed section 6 clarifies that, even if an FMA Act agency makes a notional
payment, whether to another agency or another part of the same agency (such as a
different "business unit" within that agency), this is to be treated as if it were a "real"
payment.
25. The amended section also clarifies that the FMA Act applies in relation to a
notional receipt, which is to be treated as if it were a real receipt.
26. These provisions expand upon the recognition of a "notional transaction" in the
annual Appropriation Acts. In particular, clause 5 of the Appropriation Bill (No. 1)
2008-2009 says "For the purposes of this Act, notional transactions between Agencies are
to be treated as if they were real transactions". Further, the note to clause 5 states that
"One of the effects of this section is that the payment will be debited from an
appropriation for the paying Agency, even though no payment is actually made from the
Consolidated Revenue Fund".
Offences: section 7
27. Item 16 repeals section 7, which is now redundant because Chapter 2 of the
Criminal Code Act 1995 now applies to offences under the FMA Act, without that needing
to be stated, due to subsection 2.2(2) of the Criminal Code Act 1995. Also, because the
standard drafting practice is no longer to refer to "maximum penalties" in Commonwealth
legislation, but instead rely on the standard provisions of the Crimes Act 1914 dealing with
penalties, references throughout the FMA Act to "maximum penalty" have been replaced
with "penalty" (as set out below at the relevant items).
Interaction between Finance Minister's Orders and the FMA Regulations
28. Items 17, 26, 45, and 57 amend sections 10 (banking), 13 (official accounts), 40
(securities), and paragraphs 60(2)(a) and (b) (Commonwealth credit cards), respectively.
Those provisions contain references to the Finance Minister's Orders (FMOs) that are to
be substituted with references to the Financial Management and Accountability
Regulations 1997 (FMA Regulations), as made under section 65 of the FMA Act.
29. The main reason for these amendments is to streamline the legislative framework
affecting FMA Act agencies. Accordingly, most matters addressed in the FMOs are to be
subsumed into the FMA Regulations, while retaining the FMOs to focus on the
requirements for agencies' financial statements (in the version of the FMOs typically titled
as the "Finance Minister's Orders for Financial Reporting", in relation to the relevant
financial year onwards).
30. This will help reduce the scope for confusion that can arise between two different
sets of FMOs, which are currently made under the same legislative authority (section 63 of
Explanatory Memorandum - Financial Framework Legislation Amendment Bill 2008 page 3
4
the FMA Act). Accordingly, officials in FMA Act agencies will only need to have regard
to the FMA Regulations and the FMOs on these subsidiary matters, rather than to the
FMA Regulations and two sets of FMOs.
Penalties generally
31. Items 18, 24, 27, 30, 31, 46, and 56 amend sections 10-11, 12, 13-14, 16, 26, 40-
41 & 43 and 60, respectively, to align the references to penalties with standard drafting
practice. Each of the references to "Maximum Penalty" in those sections is substituted
with the word "Penalty."
Outsiders making payments: section 12
32. Items 19 to 25 amend the provisions in section 12 relating to outsiders. In short, it
will allow a person who is neither a Minister nor an official in (or part of) an FMA Act
agency to make payments of public money, where the agreement or arrangement engaging
them is authorised by Parliament or the Finance Minister. This is a deregulation initiative
to better facilitate the process by which outsiders, such as contractors, can collect money
on behalf of the Commonwealth and, for example, deduct an authorised level of fees
before transmitting the balance to the Commonwealth.
33. An outsider making a payment in accordance with section 12 will not become an
official for the purposes of the FMA Act by making such a payment. Rather, an official
within an agency will still be required to hold a valid drawing right and debit the relevant
appropriation. The amendment includes an offence for an outsider making a payment of
public money that is not authorised.
34. In other cases (except where exempted by other legislation), the FMA Regulations
have the effect of conferring the status of an "official" on a person who makes a payment
of public money, due to the definition of "financial task" in the FMA Regulations.
Special Instructions are a legislative instrument: section 16
35. Items 28 and 29 clarify that a Special Instruction issued under section 16 (in
relation to what then can be described as "special public money") is a legislative
instrument under the Legislative Instruments Act 2003 (LI Act). It is necessary to state
this explicitly, because subsection 16(2) states that "in the case of inconsistency, Special
Instructions override" the FMA Act, the regulations and the Finance Minister's Orders.
Accordingly, it is appropriate to have Parliamentary scrutiny of Special Instructions.
36. Subsection 16(2) also states that "Special Instructions cannot be inconsistent with
the terms of any trust that applies to the money concerned". The interaction of the terms
of any trust, with the FMA Act, and the possible need to seek a Special Instruction from
the Finance Minister, are matters for agencies to consider before agreeing to the terms of a
trust. It would also be relevant to consider that a Special Instruction is disallowable, under
the LI Act, and is also subject to the sunsetting requirements of the LI Act.
Appropriations and drawing rights: section 27
37. Items 32 and 33 clarify that drawing rights under section 27 may be issued in
relation to a class of appropriations. This confirms that the Finance Minister, or a
delegate, may issue drawing rights in terms that encompass a type of appropriation, thus
reducing red tape and the potential for drawing rights to become overly complex. For
example, where a drawing right relates to a departmental appropriation, there is a risk that
the drawing right instrument would need to be reviewed each time that an Appropriation
Act or an Appropriation (Additional Estimates) Act is passed.
Explanatory Memorandum - Financial Framework Legislation Amendment Bill 2008 page 4
5
Advisory Committees and FMA Regulations: sections 33, 34 & 59
38. Items 35, 38 and 61 relate to the need for details that are subject to potentially
regular amendment (in sections 33, 34 and 59) to be set out in the FMA Regulations,
rather than in the FMA Act itself. These details relate to an "Advisory Committee", which
is required to prepare a report before the Finance Minister waives an amount, or authorises
an act of grace payment, over $100,000. The composition of the Advisory Committee is
set out in section 59 of the FMA Act. However, both the amount of the threshold and the
details of the composition of the committee require updating. For example, the name of
the Department of Finance and Deregulation would need to be updated in section 59.
39. Rather than make those amendments to the Act, these issues can be better
co-located in a regulation, and thus details such as threshold amounts and the names of
agencies can be updated through the regulations in future.
40. A note has been added to explain that regulations (made under section 65 of the
FMA Act) can provide for these details, before the Finance Minister makes the relevant
decisions. The proposed amendment to section 65 (see Item 61 of the Bill) also
specifically (and to avoid doubt) allows for regulations to be made on these matters.
41. Item 34 adds a note to the end of subsection 33(1) referring to
subparagraph 65(2)(a)(ia), specifying that regulations can be made regarding the Finance
Minister considering a report, before authorising an act of grace payment above a
specified amount.
42. Item 37 adds a similar note to the end of subsection 34(1), specifying that
regulations can be made regarding the Finance Minister considering a report before
authorising the waiver of a debt above a specified amount.
Note regarding appropriations supporting act of grace payments: section 33
43. Item 36 removes the words at the end of a note in section 33 because an agency's
outcomes are not directly relevant in supporting an act of grace payment where the
appropriation to be relied upon by the relevant agency is a departmental appropriation.
This interpretation of a departmental item, in the annual Appropriation Acts, is informed
by the High Court case of Combet v Commonwealth of Australia (2005) volume 224,
Commonwealth Law Reports (CLR), at page 494.
Payments pending probate: section 35
44. Item 39 repeals section 35, dealing with the Finance Minister's approval of
payments pending probate, on the basis that this issue is more appropriately dealt with in
regulations, rather than in the FMA Act itself. As mentioned below in relation to Item 61,
(and to avoid doubt), the regulation-making power in section 65 of the FMA Act expressly
provides for the making of regulations on this topic.
Investment of public money: section 39
45. Items 40 to 44 deal with the investment of public money by the Finance Minister
and the Treasurer under section 39. Item 38 clarifies that investments made by the
Finance Minister or the Treasurer are made "on behalf of the Commonwealth". This is
consistent with the removal of subsections 39(7) and 39(8) which include references to
two bodies corporate (and corporations sole) formerly used as a way to distinguish the
Commonwealth as an entity from the investments made under section 39.
46. This reform is being proposed as a clearer and simpler alternative to the archaic
"saving" of two bodies corporate derived from two now-otherwise-repealed laws: the
Audit Act 1901 and the Loan Consolidation and Investment Reserve Act 1955. Similarly,
Explanatory Memorandum - Financial Framework Legislation Amendment Bill 2008 page 5
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further information is proposed for the end of a note that appears after subsection 39(6), to
explain that re-invested amounts do not become "public money" under the FMA Act
because "the proceeds will not be received by or on behalf of the Commonwealth before
the proceeds are re-invested".
Chief Executives' powers to enter contracts etc: subsection 44(1)
47. Item 47 adds a note after subsection 44(1), to help explain its significance in
relation to one of its most common and practical uses - entering into contracts on behalf
of the Commonwealth.
48. Subsection 44(1) says that "A Chief Executive must manage the affairs of the
Agency in a way that promotes proper use of the Commonwealth resources for which the
Chief Executive is responsible". The proposed note states that a Chief Executive "has the
power to enter into contracts, on behalf of the Commonwealth, in relation to the affairs of
the Agency".
49. The reason for this, again as part of improving the Act's readability, is to recognise
expressly that section 44 reflects the fact that Chief Executives may exercise the executive
power of the Commonwealth generally, to the extent that it relates to the affairs of their
Agency. This capacity mirrors that of Ministers in whom, of course, executive power of
the Commonwealth vests, as well as the executive power of the Governor-General: see
sections 61 and 64 of the Australian Constitution. Accordingly, the executive power of
the Commonwealth is used frequently in relation to entering into contracts or other
agreements or arrangements, including leases and licences.
50. As stated in, for example, Seddon, N, Government Contracts: Federal, State and
Local, 3rd edition, Federation Press, 2004, "The department head (or Chief Executive) has
the same authority as the minister, that is, to enter into contracts properly within the
subject matter of the department's portfolio" (pages 105-106).
51. This interpretation derives from a range of cases, such as Coogee Esplanade Surf
Motel Pty Ltd v Commonwealth (1976) volume 50, Australian Law Reports, page 363 at
383, where Glass JA said "the authority of a particular officer to bind the Crown by a
contract made in the ordinary course of government business may be inferred from the
nature of his [or her] office (New South Wales v Bardolph (1934) 52 CLR 455 at 502-503)
and requires no statutory foundation".
52. The reference in the note to a Chief Executive being able to enter contracts "in
relation to the affairs of the Agency" is to be read in broad terms. In particular, the
Government will generally expect agencies to work cooperatively in a range of areas,
including the implementation of whole-of-Government policies. This might include,
therefore, one agency entering into a contract on behalf of the Commonwealth, where the
services can be accessed by other agencies or governmental bodies (such as occurs
currently, for example by the Department of Finance and Deregulation in relation to the
leasing of vehicles for Commonwealth agencies). Decisions on whole-of-Government
procurement will typically be made at a Ministerial level. There may also be occasions
when agencies decide cooperatively to share arrangements, such as through a request for
tender that allows the inclusion of other agencies.
53. Similarly, a Department of State may need to work closely with another agency in
the same portfolio. This is particularly the case in relation to formation, dissolution or
change processes for portfolio agencies or bodies generally, where Departments may
legitimately obtain goods or services on behalf, or in anticipation, of the requirements of a
portfolio body.
Explanatory Memorandum - Financial Framework Legislation Amendment Bill 2008 page 6
7
54. Moreover, some FMA Act agencies will be required, by their nature, to deal with
contracts and payments on behalf of other agencies. In these cases, arrangements might
also be established to reimburse the Department or agency bearing the initial costs of such
contracts.
55. The note also recognises that Chief Executives may delegate the ability to enter
contracts on behalf of the Commonwealth to officials in accordance with section 53 of the
FMA Act. Delegations, along with authorisations under the general law, are important
ways for the Chief Executive's ability to enter contracts (which, as mentioned above, can
be "inferred") to be passed on to officials within an agency or to relevant officials of other
agencies. It is also a mechanism by which a Chief Executive can help control the
contractual capacity of officials who might otherwise be regarded as having implied
authority to enter into contracts etc, on behalf of the Commonwealth, absent an
authorisation from a Minister, an authorisation or a delegation from a Chief Executive or a
statutory office-holder with such capacity, or direct statutory authorisation.
56. Importantly, the ability to provide delegations under section 53 also includes the
ability of the Chief Executive to provide directions to delegates about their use of the
delegation. Similarly, a Chief Executive may provide instructions to officials in their
agency, including delegates, through the Chief Executive's instructions, which can be
made under section 52 of the FMA Act. Similarly, those instructions may be a useful
place for Chief Executive to co-locate other internal governance requirements, such as
delegations and authorisations, depending on the size and needs of the particular agency.
Compliance with other legislative requirements: subsection 44(2)
57. Item 48 amends subsection 44(2), primarily to improve its readability.
58. The existing subsection 44(2) uses over 50 words to effectively recognise the fact
that Chief Executives, in promoting the proper use of resources, must - of course - act
within the law. However, it is not necessary to describe law as something that could
potentially "hinder or prevent the proper use of those resources". Rather, the boundaries
of the law set the legitimate context within which the "proper use" of resources is to be
promoted. Accordingly, the revised subsection 44(2) was able to be shortened by
removing that wording.
59. Similarly, subsection 44(2) has been prepared so that it will be read in the context
set out in subsection 44(1), to basically state, as much to avoid doubt, the need for Chief
Executives to comply with the law.
60. The second way in which the provision has been simplified is through removing
the phrase that, if a law would "hinder or prevent" the proper use of resources, then the
Chief Executive "must manage so as to promote proper use of those resources to the
greatest extent practicable while complying with those requirements". This has been
removed as complying with the law (whether in the Act, the FMA Regulations, a "Special
Instruction" under section 16 regarding special public money, or another law) is the
context within which policy discretion applies, rather than something that would "hinder
or prevent" the proper use of resources. To put this another way, it could hardly be said
that the proper use of resources would be a use that did not comply with the law.
Relevance of Commonwealth policies: subsection 44(3)
61. Item 49 adds the requirement that the "proper use" of that is to be promoted in
relation to Commonwealth resources under subsection 44(1), is defined under subsection
44(3) as being: "proper use means efficient, effective and ethical use that is not
inconsistent with the policies of the Commonwealth" (emphasis added).
Explanatory Memorandum - Financial Framework Legislation Amendment Bill 2008 page 7
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62. The principal purpose of the amendment is to ensure that subsection 44(1) -
although conferring basic responsibilities on a Chief Executive in relation to the
operations of an agency - is not seen as conferring on Chief Executives autonomy from
the Government's policies (in particular, Chief Executives of bodies such as Departments,
which do not have any legal independence from the Commonwealth Government). To that
extent, the amendment serves a function similar to the stipulation in subsection 57(1) of
the Public Service Act 1999 that the Secretary of a Department manages the Department
"under the Agency Minister".
63. This also recognises a concept that already exists under FMA Regulation 9, which
requires people (such as Chief Executives and their delegates) who can approve spending
proposals to ensure that the approval will both "make efficient and effective use of public
money" and that it will also be "in accordance with the policies of the Commonwealth".
64. This concept is sufficiently important to be reflected in the primary legislation. In
particular, it would be difficult to assert that it would be ethical to promote a use of
resources in a way that was a clear contravention of Commonwealth policy. The proposed
test in section 44 that proper use be "not inconsistent" with Commonwealth policies is not
as emphatic as the requirement under FMA Regulation 9 that the approval of a spending
proposal be "in accordance with" Commonwealth policies. However, the distinction has
been made consciously, on the basis that a specific spending proposal will allow for a
more direct consideration of relevant policies in the context of the relevant procurement,
grant or other commitment.
65. More generally, it is important to note that Commonwealth policies always exist
within a relevant context. For example, some policies may set out levels of discretion
about when they are to apply. Also, some policies may be stated in terms of broad
guidance only, while other policies may involve very specific guidance on particular
issues. Policies can also set out that decision-makers should not apply the policy
inflexibly, and should consider the context of the particular situation. Other policies may
be expressed as "mandatory", as illustrated by the Mandatory Procurement Procedures
within the Commonwealth Procurement Guidelines.
66. Typically there will be a process by which the policy decision-maker could be
asked to consider an exception to, or a modified application of, the policy. The relevant
decision-maker is typically the person or body that made the initial policy, unless they
have authorised another person or body to agree to changes or exceptions.
67. A government policy is conventionally established by Ministers collectively, such
as through Cabinet or by the relevant portfolio Ministers obtaining agreement from the
Prime Minister. Where such a policy has a direct financial management requirement, the
Prime Minister will typically involve the Finance Minister.
68. Officials are also required to comply with their Chief Executive's policies for the
operation of their agency, such as stated within each agency's Chief Executive's
Instructions. Officials may also be required to act consistently with a policy of the
Minister with portfolio responsibility for their agency, which may, for example, be
reflected in the Chief Executive's Instructions or in a Ministerial direction where
applicable.
69. In relation to procurement, a useful starting resource for finding relevant policies is
the list that appears in Financial Management Guidance No. 10: Guidance on Complying
with Legislation and Government Policy in Procurement, which is available through the
website for the Department of Finance and Deregulation. More recently, the Government
has decided to develop and implement a policy framework for coordinated procurement
contracts, which agencies will need to comply with as it is rolled out.
Explanatory Memorandum - Financial Framework Legislation Amendment Bill 2008 page 8
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70. Four other general policies affecting financial activities of agencies include the
Guidelines for Issuing and Managing Indemnities, Guarantees, Warranties and Letters of
Comfort, the Australian Government Competitive Neutrality Guidelines for Managers, the
Australian Government Foreign Exchange Risk Management Guidelines and the
Australian Government Cost Recovery Guidelines.
71. The amendment, of course, does not reduce the position or decision-making of
independent statutory office holders, whose position has been set out in legislation, when
they make decisions that implement the statutory function provided to them by the
Parliament. This is because, in all cases, policy is subservient to the law.
Keeping responsible Minister and Finance Minister informed:
proposed section 44A
72. Item 50 inserts a new section 44A that mirrors in part the requirements of the
former subsection 50(2).
73. The new subsection 44A(1)(a) allows the responsible Minister to request
information relating to the operations of the agency. This requirement is similar to
sections 16 and 41 of the CAC Act (in relation to Commonwealth authorities and wholly-
owned Commonwealth companies respectively). The amendment makes explicit an
approach that has generally been considered implicit: in the exercise of responsible
government, a Minister responsible for an agency can seek information from the agency
generally.
74. The new subsection 44A(1)(b) allows the Finance Minister to request information
on the financial affairs of the agency. This requirement largely already exists in
subsection 50(2), but is properly co-located with the new section 44A, equivalent to the
relevant provisions of the CAC Act. In the comparable provision in the CAC Act there is
no restriction for such requests that a Chief Executive "is not required to give information
whose disclosure is prohibited by any law". Accordingly, those words have not been
carried over to the new section 44A. In particular, the application of such words is not
entirely clear, and it could potentially lead to the view that mere undertakings of
confidentiality could restrict the proper access to information by Ministers regarding
relevant affairs of agencies.
Audit committee requirements: section 46
75. Item 51 removes the requirement for the Finance Minister's Orders to address
audit committee requirements, and instead lists on the face of the FMA Act itself the
functions of an audit committee. The amendment allows for the regulations to prescribe
the composition of such committees. This approach is consistent with the approach taken
in the Commonwealth Authorities and Companies Act 1997.
76. Further, the amendment will specifically refer to one of the functions of the audit
committee being to help the agency to comply with its legislative obligations under the
financial framework. An agency's Chief Financial Officer (CFO) is a significant nexus
between the agency as well as its internal and external auditors (the latter being the
Australian National Audit Office). This amendment aims to more directly help CFOs, and
other relevant senior managers, to play a role in this crucial relationship as better
governance takes account of audit findings and the legislative framework that underpins
financial management and accountability generally.
Additional Financial Statements: section 50
77. Items 52 to 53 relate to Chief Executives' requirements to provide financial
statements to the Finance Minister. Subsection 50(2) is being repealed, with the contents
Explanatory Memorandum - Financial Framework Legislation Amendment Bill 2008 page 9
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to be contained in the new section 44A. Accordingly, the heading will only refer to
"Additional Financial Statements", since the words regarding "and information" relate to
the part of the provision that has moved to the new section 44A.
Reporting requirements and change of Agency: section 51
78. Item 54 repeals the existing section 51 of the FMA Act and substitutes a new
section 51. The amendment clarifies the reporting requirements of agencies that cease to
exist or whose functions are transferred, and ensures that all foreseeable situations are
covered (which was not the case with the original provision).
79. Subsection 51(1) relates to reporting requirements where an agency ceases to exist
(for example, where an agency is abolished) and its functions are not transferred to
another agency or agencies. The amendment allows the Finance Minister to nominate the
Chief Executive who is to report, under section 49 of the FMA Act, on the functions of the
agency that no longer exists.
80. Subsection 51(2) relates to those instances where the function of the agency that no
longer exists is performed by another agency or agencies. The amendment allows the
Finance Minister to nominate which Chief Executive or Chief Executives shall report on
the function for the purposes of section 49 of the FMA Act.
81. In both cases, the way in which the nomination will occur is set in general terms,
as was the case with the original provision.
Advisory Committees: section 59
82. Item 55 repeals section 59 in order to simplify the requirements for reporting large
waivers, as set out above in relation to items 35, 38 and 61 (see the heading "Advisory
Committees and FMA Regulations: sections 33, 34 & 59", above).
Status of FMOs as a "legislative instrument": section 63
83. Items 58 and 59 relate to the Finance Minister's ability to make Orders.
Subsection 63(1) is amended to clarify that an Order is made by legislative instrument.
84. This is necessary because subsection 63(3) said "an Order is a disallowable
instrument for the purposes of section 46A of the Acts Interpretation Act 1901", but that
section has now been repealed and the concept of disallowable instruments is dealt with
by the concept of a legislative instrument under the LI Act. These Orders will still be
disallowable and subject to the sunsetting regime under the LI Act.
Guidelines by Ministers: section 64
85. Item 60 inserts a new subsection 64(3) to clarify that a guideline made by a
Minister is a legislative instrument, being a term that therefore leads to these guidelines
being published, under the LI Act, on the Federal Register of Legislative Instruments.
However, these guidelines are exempt from the disallowance and sunsetting rules, due to
subsection 44(2), at item 21, and subsection 54(2), at item 19, of the LI Act, respectively.
Amendment to the Public Service Act 1999
86. Item 62 amends subsection 73(5) by omitting the reference to "Agency
outcomes." This amendment brings the section into line with the decision in the High
Court case of Combet v Commonwealth of Australia (2005) 224 CLR 494. In short, it is
not necessary to link departmental expenditure to particular agency outcomes.
Explanatory Memorandum - Financial Framework Legislation Amendment Bill 2008 page 10
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Amendments to the Reserve Bank Act 1959
87. Items 63 to 66 amend subsection 7A(3) and paragraphs 25L(4)(c) and (d) of the
Reserve Bank Act 1959, to update references to provisions in the CAC Act which were
amended by the Corporate Law Economic Reform Program Act 1999 (also known as
CLERP 3).
Part 2 - other provisions
88. Items 67 to 76 relate to savings, application and transitional provisions, as
explained in more detail below.
Saving provision relating to the Albury-Wodonga Development
Corporation
89. Item 67 saves the annual reporting provisions applying to the AWDC for the
financial year ending 30 June 2009. This is because the CAC Act does not affect it until
1 July 2009 and therefore the AWDC would not report under the CAC Act until after the
first full year of the CAC Act affecting the AWDC's operations.
Application, saving and transitional provisions relating to the FMA Act
90. Item 68 states that part of the amendment to section 12 of the FMA Act (item 20,
relating to the ability of an outsider to make a payment of public money) only applies to
agreements or arrangements entered into on or after the commencement of the item. This
would, of course, allow existing arrangements to be amended (if authorised) so that
existing outsiders could commence making payments where appropriate.
91. Item 69 applies the amendments (in items 32 and 33) affecting drawing rights
(under section 27 of the FMA Act) issued on or after the commencement of the item.
92. Item 70 saves the application of section 35 regarding payments pending probate,
in relation to payments authorised before the commencement of item 39.
93. Item 71 preserves investments made under section 39, and clarifies that any such
investments are held on behalf of the Commonwealth (as in force before the
commencement of item 44).
94. Item 72 allows for any audit committees established before the commencement of
the amendment to section 46 to remain in place. However, it does require Chief
Executives to identify and rectify any areas of non-compliance under the section as
amended, upon the commencement of the new section 46. This is not expected to require
any rectification, in practice, as the general requirements in the new section 46 are already
more than generally covered under the existing FMOs relating to the functions and
responsibilities of an audit committee.
95. Item 73 saves the application of subsection 50(2) in relation to Chief Executives
responding to a requirement to provide information due to a request made before
commencement of the amendment.
96. Item 74 applies the amendment made by item 54 to section 51, in relation to
reporting requirements following a change in agency functions, to agencies that cease to
exist, or functions that are transferred, after commencement of the item.
Regulations relating to transitional issues
97. Item 75 allows for regulations to be made addressing any transitional issues
required as a result of amendments contained in Schedule 1 to the Bill.
Explanatory Memorandum - Financial Framework Legislation Amendment Bill 2008 page 11
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Provisions relating to the National Water Commission Act 2004
92. Item 76 allows the Special Account, known as the Australian Water Fund
Account, contained in the NWC Act, to be debited by a maximum of $320,000,000. This
reflects the change in administrative arrangements for the Water Smart Australia program,
which from 1 July 2008 is administered by the Department of the Environment, Water,
Heritage and the Arts. That Department will be funded for the Water Smart Australia
program by a means other than the Australian Water Fund Account (such as general
Appropriation Acts).
93. Importantly, this item is designed only to provide for amounts that represent
unspent Water Smart Australia program moneys (which are held in the Australian Water
Fund Account as at 30 June 2008) to be available. The amendment is not directed to other
amounts representing other moneys that may be held in the Australian Water Fund
Account regarding other programs that are supported by the Australian Water Fund
Account (including the Raising National Water Standards program).
94. The item also clarifies, to avoid doubt, that the Chief Executive Officer of the
National Water Commission no longer has responsibility for any financial assistance
provided from the Australian Water Fund account for the Water Smart Australia program
following the debiting of the amount referred to above.
Notes on Schedule 2 - Consequential amendments to
Defence legislation
95. Item 1 amends section 83(1) of the Defence Home Ownership Assistance Scheme
Act 2008, as a consequence of the amendment to section 12 of the FMA Act proposed at
item 20 above, regarding outsiders making payments of public money.
96. Item 2 applies the amendment at item 1 of Schedule 2 to agreements or
arrangements entered into on or after the commencement of the item.
Explanatory Memorandum - Financial Framework Legislation Amendment Bill 2008 page 12
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